The notion that everyone must have health insurance to acquire medical care has reached such a level of obsession that it almost deserves its own entry in the Diagnostic and Statistical Manual of Mental Disorders (the guidebook for mental illness that has grown so bloated with diagnoses that even the National Institute of Mental Health withdrew its support this year).

Imagine if you showed up at a party late on a rainy evening and your friends asked you why you were delayed. “I had to stop to replace my windshield wipers,” you answer. “What car insurance do you have?” they reply. “What does that matter? I didn’t have an accident on the way here. The new wipers worked fine and I saw the road clearly.”

There follows a general wailing and lamentation that the new wipers are “preventive care” and should therefore be “free”; that you will likely go bankrupt if you have to pay out of pocket to keep your car running; and the government needs to do something to guarantee that nobody has to buy their own windshield wipers.

You would certainly think that your friends needed some help with their mental processes. But, of course, they are not mentally ill. They simply have a fundamental misunderstanding of the role of insurance in health care. Like most Americans, they need to be introduced to a correct understanding.

For that, they would be well advised to consult D. Eric Schansberg’s “The Economics of Health Care and Health Insurance” in the latest issue of The Independent Review, vol. 18, no. 3 (Winter 2014), pp. 401-420. Schansberg reviews a significant number studies, which show that when preventive care is insured, it tends to be over consumed. This increases health spending, despite what politicians like President Obama claim.

Schansberg reminds us that the provision of medical services is governed by the same rules as other markets: When different providers compete against each other, prices drop—although the market for physicians is artificially squeezed by organized medicine, which leverages political influence to bring about cartel-like conditions.

With respect to health insurance, most people call for regulation because they believe that insurers know more about the health of the population than individuals do, so they can discriminate with respect to premiums. However, Schansberg points out that the problem of asymmetric information actually favors the individual. Each person knows more about his or her health status than an insurer does. This leads to “adverse selection” because sicker people will seek to buy insurance, while healthier people shun it. Insurers respond by underwriting, which is properly understood as insurers responding responsibly to this information asymmetry, not gouging or discriminating against the neediest people.

Doctors also know more about the people they treat than insurers do, which leads to similar problems when they deal with insurers. The literature demonstrates that the best way to ameliorate these problems is to minimize the use of insurance in health care. Because we insure “too much” health care, premiums go up, and fewer people prefer to buy insurance.

The status quo is made worse, Schansberg suggests, by a moral problem. Noting that 70 percent of U.S. health spending is accounted for by the chronically ill, Schansberg identifies rapidly increasing obesity as a cause of this. As long as many of our citizens refuse to take responsibility for their own health, no system of health care or health insurance will successfully address the cost problem. And yet, the political incentives under Obamacare make this worse: Because taxpayers are taking a bigger share of the liability for health costs, the case for personal responsibility is an increasingly hard sell.

The American healthcare debate is in a vicious feedback loop. Those who wish to find a way to break out of it should invest the quarter hour necessary to read Schanberg’s thesis.

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